Answer Questions 1 Through 6 About Insuring a Portfolio Identical

question 46

Multiple Choice

Answer questions 1 through 6 about insuring a portfolio identical to the S&P 500 worth $12,500,000 with a three-month horizon. The risk-free rate is 7 percent. Three-month T-bills are available at a price of $98.64 per $100 face value. The S&P 500 is at 385. Puts with an exercise price of 390 are available at a price of 13. Calls with an exercise price of 390 are available at a price of 13.125. Round off your answers to the nearest integer.
-How many puts should be used to insure this portfolio?

• A)122,584
• B)31,397
• C)62,814
• D)961,538
• E)32,468

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Definitions:

Sold Goods Awaiting Shipment Inventory

Goods that have been sold but are still in the inventory because they have not yet been shipped to the buyer.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board that is used globally for the preparation of public company financial statements.

Inventory Holding Gains

Gains resulting from an increase in the value of inventory that a company holds over a period.

Consignment

The process of placing goods with a third party who has the authority to sell the goods on behalf of the owner, but the ownership of the goods remains with the consignor until sold.